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A property is often the major asset owned by an individual or a couple. Whilst care should be taken not to use it purely as an object of tax planning, certain steps might be considered by most couples (married or unmarried).

Joint ownership

There are two ways in which a property may be jointly owned by two or more persons:

1. Joint Tenants

This is the arrangement most often used by couples as it does mean an easy transfer of property to the survivor when a partner dies.
Holding a property as joint tenants means that on the death of one spouse (or partner) his or her interest in the property immediately and automatically passes to the surviving spouse or partner regardless of how long they survive you by, i.e. This cannot be prevented by anything said about the property in the Will.
All the surviving joint owner needs to prove absolute ownership of the property is the death certificate of his/her spouse or partner.
A benefit of joint tenancy is that it avoids the cost and delays involved in obtaining a grant or representation (Probate) on the death of the first joint tenant to die.
For the purpose of Inheritance Tax (IHT), if the survivor is a spouse the interest in the property is IHT exempt on first death. If the combined value of a husband and wife's assets (including the house) are greater than the nil-rate band, or there are children from a previous marriage, or there is a need for creditor protection then consideration might be given to owning the home as tenants-in-common. Coupled with the appropriate Will this can provide an opportunity for tax mitigation whilst ensuring security for the surviving spouse.
At the time of writing each person has a nil-rate band of £312,000. This is the amount they can leave before their estate would be liable to IHT. Tax will be charged at 40% on the sum above the nil band rate.

2. Tenants in common

Property owned under a tenancy in common passes by Will or on Intestacy (where there is no Will), and not automatically to the surviving co-owner. A tenancy in common allows the first spouse to die to leave his or her share away from the survivor. The effect could be shared ownership between the surviving spouse and children/step children or other relative(s). If the gift is made absolutely (without condition) it is possible that the child or other beneficiary may want the house sold to realise the inheritance.
Careful consideration needs to be made when deciding to sever a joint tenancy and how the estate will be distributed on first death to protect the surviving spouse and preserve the estate in an appropriate and practical manner.
Sometimes granting a life interest is the best way of protecting the surviving spouse from the possibility of losing the right to live in the matrimonial home. This has the effect of granting the survivor the right to live in the deceased's portion of the property but not ownership. On the death of the second spouse the property reverts to the children or other named beneficiaries. However, the occupant will be deemed to have had an interest in possession and no IHT saving is achieved.
An alternative solution is for a husband and wife to make Wills leaving an amount of assets up to the nil-rate band (and this can include their respective interest in the property) in a discretionary trust. The surviving spouse's right to the home is guaranteed as part-owner and first-named beneficiary.

Example

Fiona and Simon own a house worth £300,000 together as tenants in common. They make Wills leaving their respective shares of the house to each other conditional on surviving at least 30 days, and if not to their son David. Fiona and Simon die within 1 year of one another.
Simon’s half share (£150,000) is held by his personal representatives for Fiona if she survives by 30 days. As she dies after this period it then passes to her on trust then to her son David on her subsequent death. There will be no IHT because it falls within her nil-rate band (as she enjoyed the use of it!) Fiona’s half share (£150,000) also passes to David. There will be no IHT because it falls within Fiona’s nil-rate band.

Advantages of severing tenancy

  • Can prevent children/stepchildren or other beneficiaries from losing out should a surviving spouse remarry or cohabit.
  •  It gives you the freedom to gift your share of the property, either outright or by giving the right to occupancy (e.g. to your spouse or partner) with directions as to what happens to the property after the occupants death.
  • If combined with an appropriate Will (promissory trusts), it can maximise tax allowances.

Disadvantages

  • If the surviving partner has been given the right of occupancy using a 'property trust' then they are only able to access the equity in their share of the property (the other share does not belong to them).
  • The property does not pass automatically as it does for joint tenants and a grant of representation (Probate) will be required.

Summary

For some people the standard arrangement of joint tenants will meet their requirements and will be the most convenient form of ownership. However, in an increasing number of circumstances (especially following the legislative changes announced on 9th October 2007) particularly where couples have been married before, or simply want to endure that 'their half' of a property is protected, it may be appropriate to reorganise the ownership as tenants in common. If you do this it is vital to make suitable Wills as the rules of Intestacy may cause hardship.

How to change from joint tenants to tenants in common

1. Assuming the property is owned as joint tenants by two or more people and they all agree, then the Land Registry require you to send them a 'Mutual Notice of Severance of Joint Tenancy' signed by all joint owners. They will require the full address of the property and the title number. A charge may be made by Land Registry if you are unable to provide the title number. Severing a joint tenancy is a service English Wills is able to provide.
2. You can still sever a joint tenancy even if a co-owner is uncooperative. This is called a 'Unilateral Notice of Severance of Joint Tenancy', if this is appropriate ask for details.
However, if a person wishing to sever is separated but not divorced, and the husband (or wife) or partner i.e paying the mortgage, a Unilateral Notice could give grounds to cease paying either the whole or part of the mortgage.
It is important to remember that legislation and tax law changes from time to time and the steps you take today may be inappropriate and require alteration in the future. It is your responsibility to review your Will every 2 or 3 years to ensure that it still suits your circumstances.

Sole Ownership

There may be times when a home is owned purely by either one or the other of the husband or wife. This may cause problems in terms of equalisation of an an estate or in terms of securing the future of the spouse not named on the title deeds if no Will existed.
We are able to advise our clients on the best course of action and the pitfalls that must be avoided under the Pre-Owned Asset Tax legislation and Stamp Duty Land Tax charges levied by the Land Registry.